Stagflation trades return! The market was awakened by a single sentence from Trump: Stop fantasizing, the war won't end that soon!
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Trump’s nationally televised speech on Wednesday evening Eastern Time completely shattered investors’ expectations that the Middle East war was about to end. The market shifted rapidly: stocks fell, oil prices surged, the dollar strengthened, and risk aversion sentiment returned across the board.
According to Xinhua News Agency, Trump stated in his speech that the United States would launch “more intense strikes” on Iran in the “next two to three weeks” and threatened to bomb Iran “back to the Stone Age.” Although he claimed the U.S. military would “soon” complete all military objectives, he did not provide any concrete timetable for ending the conflict.
The market originally expected Trump’s national speech to send signals of de-escalation, but instead received upgraded threats. Institutions such as Nomura and NAB indicated that the speech did not send clear signals of cooling down, the blockade of the Strait of Hormuz would be difficult to resolve in the short term, and the pressure of high oil prices worldwide might last until late April. Trump’s speech “was truly disappointing.”
After Trump’s speech, Brent crude futures surged about 7% to briefly touch $108 per barrel, U.S. stock futures fell over 1%, European stocks dropped more than 2%, and major Asia-Pacific market indexes turned red almost across the board.
Hope dashed: The market suffers a “great disappointment”
Earlier this week, Trump had sent signals that the conflict might end soon, which pushed up global stock markets and caused the dollar to retreat from recent highs. Investors used this window to increase risk asset positions, betting that the conflict would calm down.
However, Wednesday’s televised speech completely broke up this logic.
“The speech itself wasn’t anything new, the key is that he confirmed two to three more weeks of fighting,” said Mike Houlahan, director at Auckland’s Electus Financial Ltd. “This pushes the conflict ending window further away.” He further pointed out that whether this delay would put additional stress on fuel supply chains is the next thing to watch.
Westpac’s strategy team pointed out that the speech destroyed the de-escalation trades and also mentioned:
“If there was any difference, it’s that the speech reintroduced threats of a more ‘decisive final blow’ before any unilateral ending.”
On the eve of the Easter holidays, traders who had increased positions previously quickly closed out and withdrew, intensifying market volatility.
Ceasefire prospects remain unclear, all sides hold firm positions
After the speech, there were no substantive signs of diplomatic easing.
According to CCTV News citing Iran’s Tasnim News Agency, Iran’s armed forces issued a warning, saying they would launch a “more destructive and larger-scale” counterattack, and official Iranian statements declared the war would continue until the enemy “regrets permanently and surrenders.”
Meanwhile, Israel’s military reported detecting missiles flying in from Iran’s direction, Saudi Arabia and Abu Dhabi both intercepted incoming drones or missiles that same day, and the U.S. Embassy in Baghdad has urged American citizens to leave Iraq.
On the diplomatic front, Reuters cited Pakistani security sources saying Islamabad has proposed a temporary ceasefire plan, but has yet to receive a response from any party.
Sources revealed that U.S. Vice President JD Vance last conveyed a message through a Pakistani intermediary on Tuesday this week, indicating that Trump would accept a ceasefire plan under certain conditions. However, a senior Iranian source told Reuters that Tehran insists on a guaranteed ceasefire agreement.
Analysts pointed out that if Trump were to end the war unilaterally without a deal, Iran might actually benefit with a tougher stance and greater bargaining power.
Energy crisis unresolved, stagflation risk rises
The most disappointing aspect of Trump’s speech for the market was that he did not mention any reopening arrangements for the Strait of Hormuz. This critical waterway, which carries about one-fifth of the world’s oil and LNG transport, has triggered one of the most severe global energy supply shocks in history since Iran started its blockade.
Matt Simpson, senior market analyst at Brisbane’s Stonex, said, “With the Strait of Hormuz effectively closed and no reopening plan, oil prices will remain high for a long period,” and the market will have to face “a new round of inflation.”
The combination of high oil prices and slowing economic growth continues to ferment stagflation risks. The U.S. 10-year Treasury yield rose by 5 basis points to 4.376% after Trump’s speech, reflecting the market’s concerns about inflation compressing the space for accommodative monetary policy.
Japan’s new central bank board member Toichiro Asada also warned this week that the Iran war could put Japan at risk of stagflation that monetary policy may not be able to address. Chesler said:
“We are entering a stagflation scenario of low growth and persistent high inflation expectations.”
Will the war last until June?
Amid various intertwined uncertainties, analysts generally expect the market to remain risk-averse in the short term.
Carol Kong, currency strategist at Commonwealth Bank of Australia, said, “Given our expectations that the war will last at least until June, the dollar has every reason to strengthen further.”
She also pointed out, “It’s really hard to be optimistic about where the war is heading because Israel and Iran are the other two parties involved, not just the United States.”
Oil and the U.S. dollar are seen as the most supported assets in the near term by analysts, while risk assets will continue to be under pressure until there is a clear turnaround in the situation. For now, the one critical answer the market is waiting for—when the war will end—remains unknown.
Risk Warning and DisclaimerMarkets are risky; investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ special investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Investing based on this is at one’s own risk. ```